Price of Gold Fundamental Weekly Forecast – Spike in Yields Raise Fears of Fed Rate Hike

Gold futures fell over 1 percent last week to close at its lowest level since January 24, while producing its biggest decline since the week-ending August 17. The catalysts were a sharp rise in U.S. Treasury yields, a firmer U.S. Dollar and increased demand for risky assets.

For the week, April Comex gold settled at $1299.20, down $33.60 or -2.52%.

Treasury yields continued to rise on the back of a stronger-than-expected U.S. Gross Domestic Product report released on Thursday. This data prompted investors to book some profits in gold as it increased the possibility of at least one rate hike by the Fed in 2019. Rising yields tend to be bearish for non-yielding gold bullion.

The jump in Treasury yields also made the U.S. Dollar a more attractive investment, which drove down foreign demand for dollar-denominated gold.

Stocks rose in response to the GDP data, and the hopes of a trade deal between the United States and China. Gains were tempered a bit by weak ISM Manufacturing PMI data, but were still strong enough to drive down demand for safe-haven gold.

Another sign of a drop in demand for safety was the dollar’s rally to a 10-week high against the Japanese Yen. Furthermore, higher global gold inventories also weighed on gold. “Better sentiment on the stock markets and a reluctance by the physical gold investors are weighing on its price,” Commerzbank analysts said.

Weekly Forecast

Although Fed Chairman Jerome Powell stayed the course and reiterated the FOMC’s message to Congressional Sub-Committees last week in Washington, he did say later in the week, “The United States is currently in the midst of one of the longest economic expansions in our history. Unemployment is low and inflation is close to our 2%.” “My colleagues and I on the FOMC are focused on using our monetary policy tools to sustain those favorable conditions.”

These comments are potentially bearish for gold because they suggest the Fed may still be on course for at least one interest rate hike in 2019.

Gold’s sell-off on Friday in the wake of weaker-than-expected ISM Manufacturing PMI data was also a surprise, especially given the sharp sell-off in crude oil. It seems contradictory that crude oil would plunge because of a weakening global economy, and gold would also plunge. A weak global economy would tend to indicate lower overall interest rates, which would be potentially bullish for gold. In this case, I think it’s best to assume that the stronger U.S. Dollar had something to do with the weakness in both commodities.

Economic data is light this week, but on Friday, investors will get the opportunity to react to the U.S. Non-Farm Payrolls report. If the Fed Chairman isn’t too concerned about the job market then I don’t think gold traders will be either.

The weekly chart indicates the market may be headed into $1279.60 to $1263.00. Since the main trend is up, buyers could step in on a test of this value area.